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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



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FORM 10-QSB

|           |  |                                                                                         | 
|---------- |  | --------------------------------------------------------------------------------------- | 
|(checkbox) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 | 
|          
|          
|          
|          
|           |  |                                                                                         | 
|          
|          
|          
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|           |  | For the Quarterly Period EndedJUNE 30, 2001                                             | 

Commission File Number: 000-30211

MINDFULEYE, INC.(FORMERLY, RABATCO, INC.)(Exact name of registrant as specified in its charter)

|                                |  |                                    
|------------------------------- |  | -----------------------------------
|NEVADA
(Place of Incorporation) |  | 87-0616344
(IRS Employer ID Number)

SUITE 300- 355 BURRARD
ST. VANCOUVER, BRITISH COLUMBIA V6C 2G6

604-638-6800
(Registrants telephone number)







Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  (Check box)    No  (box)

Number of Shares of Common Stock, $0.001 Par Value, Outstanding at June 30,
2001: 17,247,744



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TABLE OF CONTENTS



|                                                                                              |                                                |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  |  | 
|                                                                                              | REPORT OF INDEPENDENT ACCOUNTANTS             
|                                                                                              | Consolidated Balance Sheets                   
|                                                                                              | Consolidated Statement of Operations          
|                                                                                              | Consolidated Statement of Shareholders Equity
|                                                                                              | Notes to Financial Statements                 
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II  OTHER INFORMATION                                                                  
|ITEM 1. LEGAL PROCEEDINGS                                                                    
|ITEM 2. CHANGES IN SECURITIES                                                                
|ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                    
|ITEM 5. OTHER INFORMATION                                                                    
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                   



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##### Table of Contents



MINDFULEYE, INC.
FOR THE QUARTER ENDED
JUNE 30, 2001
INDEX TO FORM 10-QSB

|                                                                                              |                                                                                                                    |  |    |      |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  | -- | ---- |  | 
|                                                                                              |                                                                                                                    |  |    | PAGE
|                                                                                              |                                                                                                                    |  |    |     
|PART I  FINANCIAL INFORMATION                                                                |                                                                                                                    |  |    |     
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|ITEM 1. FINANCIAL STATEMENTS                                                                  |                                                                                                                    |  |    |     
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|                                                                                              | Review Report of Independent Accountants                                                                           |  |    |      | 
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|                                                                                              | Consolidated Balance Sheets                                                                                        |  |    | 2    | 
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|                                                                                              | Consolidated Statement of Operations For the Three and Six Months Ended June 30, 2001                              |  |    | 3    | 
|                                                                                             
|                                                                                             
|                                                                                             
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|                                                                                              | Consolidated Statement of Cash Flows for the Six months Ended June 30, 2001 and the Six Months Ended June 30, 2000 |  |    | 4    | 
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|                                                                                              | Consolidated Statement of Shareholders Equity For the Three Months Ended June 30, 2001                            |  |    | 5    | 
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|                                                                                              | Notes to Financial Statements                                                                                      |  |    | 7    | 
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|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                                                    |  | 19 |     
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|                                                                                              |                                                                                                                    |  |    |     
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|PART II  OTHER INFORMATION                                                                   |                                                                                                                    |  |    |     
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|                                                                                              |                                                                                                                    |  |    |     
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|ITEM 1. LEGAL PROCEEDINGS                                                                     |                                                                                                                    |  | 24 |     
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|                                                                                              |                                                                                                                    |  |    |     
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|ITEM 2. CHANGES IN SECURITIES                                                                 |                                                                                                                    |  | 24 |     
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|ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                       |                                                                                                                    |  | 24 |     
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|ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                     |                                                                                                                    |  | 24 |     
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|ITEM 5. OTHER INFORMATION                                                                     |                                                                                                                    |  | 25 |     
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|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                                                                                    |  | 25 |     
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|                                                                                              |                                                                                                                    |  |    |     
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|                                                                                             
|SIGNATURES                                                                                    |                                                                                                                    |  | 26 |     





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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of MINDFULEYE,
INC.
(A development stage company)

We have reviewed the accompanying consolidated balance sheet of MindfulEye,
Inc.(the Company) as of June 30, 2001, the related consolidated statements
of stockholders equity for the six-month period then ended, and the
consolidated statements of operations and cash flows for the three-month and
the six-month periods then ended and the cumulative period from July 21, 1999
(commencement) to June 30, 2001. These consolidated financial statements are
the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, nothing has come to our attention that causes us to
believe that the accompanying consolidated financial statements are not, in all
material respects, in accordance with United States generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows from operations that raise
substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described in Note 2.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

|                        |  |                      
|----------------------- |  | ---------------------
|Vancouver, B.C., Canada |  | ELLIS FOSTER       
|                       
|                       
|                       
|                       
|October 11, 2001        |  | Chartered Accountants

1



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##### Table of Contents






MINDFULEYE, INC.
(A development stage company)

Consolidated Balance Sheets
(Expressed in United States Dollars)
(Unaudited)

|                                                 |                                                                     |   |            |         |              |   |            |         | 
|------------------------------------------------ | ------------------------------------------------------------------- | - | ---------- | ------- | ------------ | - | ---------- | ------- | 
|                                                
|                                                 |                                                                     |   | June 30,   |         | December 31,
|                                                 |                                                                     |   | 2001       |         | 2000        
|                                                
|ASSETS                                           |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Current                                          |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents                                           |   | $          | 91,086  |              |   | $          | 345,897 | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts receivable                                                 |   |            | 19,421  |              |   |            | 11,906  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Prepaid expenses                                                    |   |            | 7,718   |              |   |            | 7,808   | 
|                                                
|                                                 |                                                                     |   | 118,225    |         |              |   | 365,611    |        
|                                                
|                                                
|                                                
|                                                
|Capital(note 5)                                  |                                                                     |   | 206,520    |         |              |   | 239,848    |        
|                                                
|                                                 |                                                                     | $ | 324,745    |         |              | $ | 605,459    |        
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|LIABILITIES AND STOCKHOLDERS EQUITY             |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Current                                          |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts payable and accrued liabilities                            |   | $          | 286,222 |              |   | $          | 67,949  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Promissory note payable (note 6)                                    |   |            | 455,000 |              |   |            |        | 
|                                                
|                                                 |                                                                     |   | 741,222    |         |              |   | 67,949     |        
|                                                
|SHAREHOLDERS EQUITY                             |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Capital stock(note 8)                            |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Authorized
100,000,000 common shares with a par value of $0.001     |   |            |         |              |   |            |         | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Issued and outstanding
17,247,744 (2000  14,415,000) common shares |   |            | 17,248  |              |   |            | 14,415  | 
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Additional paid-in capital                       |                                                                     |   | 2,632,460  |         |              |   | 2,472,764  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Deficit accumulated during the development stage |                                                                     |   | (3,066,185 | )       |              |   | (1,949,669 | )      
|                                                
|                                                 |                                                                     |   | (416,477   | )       |              |   | 537,510    |        
|                                                
|History and organization of the Company(note 1)  |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Commitments(note 13)                             |                                                                     |   |            |         |              |   |            |        
|                                                
|                                                
|                                                
|                                                
|Subsequent events(note 15)                       |                                                                     | $ | 324,745    |         |              | $ | 605,459    |        
|                                                

See Notes to the Consolidated Financial Statements

|                          |  |                |  |              |  |  |  | 
|------------------------- |  | -------------- |  | ------------ |  |  |  | 
|Approved by the Directors |  | "Todd Cusolle" |  | "Scott Kerr"
|                          |  |                |  |             
|                          |  | Todd Cusolle   |  | Scott Kerr  

2



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##### Table of Contents






MINDFULEYE, INC.
(A development stage company) 
Consolidated
Statement of Operations
(Expressed in United States Dollars)
(Unaudited)

|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |           | 
|------------------------------------------------------------ | ---------------------------------- | - | ------------ | ------- | ------------ | - | ------------ | ------- | ------------ | - | ---------- | ------- |  | - | ------------- | ------- | - | - |  |  |  | - | ---------- | --------- | 
|                                                            
|                                                             | Cumulative                        
|                                                             |                                    |   | Three Month  |         | Three Month  |   | Six Month    |         | Six Month    |   |            |         |  |   | From July 21,
|                                                             |                                    |   | Period Ended |         | Period Ended |   | Period Ended |         | Period Ended |   |            |         |  |   | 1999         
|                                                             |                                    |   | June 30,     |         | June 30,     |   | June 30,     |         | June 30,     |   |            |         |  |   | To June 30,  
|                                                             |                                    |   | 2001         |         | 2000         |   | 2001         |         | 2000         |   |            |         |  |   | 2001         
|                                                            
|Revenue                                                      |                                    | $ | 13,993       |         |              | $ |              |         |              | $ | 20,321     |         |  | $ |              |         |   |   |  |  |  | $ | 20,321     |          
|                                                            
|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Operating expenses                                           |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Amortization                       |   |              | 16,664  |              |   |              | 11,092  |              |   |            | 33,328  |  |   |               | 18,046  |   |   |  |  |  |   |            | 75,105    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Consulting fees                    |   |              | 20,308  |              |   |              | 48,373  |              |   |            | 24,625  |  |   |               | 78,511  |   |   |  |  |  |   |            | 383,370   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Contract work                      |   |              |        |              |   |              |        |              |   |            |        |  |   |               |        |   |   |  |  |  |   |            | 1,279     | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Foreign exchange loss (gain)       |   |              | 7,719   |              |   |              | 3,883   |              |   |            | 5,709   |  |   |               | (452    | ) |   |  |  |  |   |            | 15,230    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Insurance                          |   |              | 8,409   |              |   |              | 627     |              |   |            | 16,905  |  |   |               | 627     |   |   |  |  |  |   |            | 29,638    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest and bank charges          |   |              | 8,495   |              |   |              | 904     |              |   |            | 10,924  |  |   |               | 6,651   |   |   |  |  |  |   |            | 22,782    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investor relations                 |   |              | 1,824   |              |   |              | 328     |              |   |            | 56,031  |  |   |               | 328     |   |   |  |  |  |   |            | 103,461   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Legal and audit fees               |   |              | 16,871  |              |   |              | 90,466  |              |   |            | 73,769  |  |   |               | 117,645 |   |   |  |  |  |   |            | 255,720   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Marketing and brand development    |   |              | 4,806   |              |   |              | 49,375  |              |   |            | 23,950  |  |   |               | 49,375  |   |   |  |  |  |   |            | 180,593   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Merger costs                       |   |              | 106,696 |              |   |              |        |              |   |            | 198,736 |  |   |               |        |   |   |  |  |  |   |            | 198,736   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Newsalert and other infeed service |   |              | 15,886  |              |   |              | 16,886  |              |   |            | 27,713  |  |   |               | 16,886  |   |   |  |  |  |   |            | 66,672    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Office and miscellaneous           |   |              | 16,061  |              |   |              | 28,661  |              |   |            | 29,229  |  |   |               | 52,239  |   |   |  |  |  |   |            | 161,969   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Rent and utilities                 |   |              | 23,052  |              |   |              | 16,601  |              |   |            | 46,475  |  |   |               | 36,086  |   |   |  |  |  |   |            | 128,760   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Stock based compensation expense   |   |              | 51,775  |              |   |              | 103,850 |              |   |            | 102,200 |  |   |               | 103,850 |   |   |  |  |  |   |            | 208,494   | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Telephone and communications       |   |              | 5,138   |              |   |              | 8,971   |              |   |            | 15,528  |  |   |               | 18,109  |   |   |  |  |  |   |            | 68,429    | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wages and benefits                 |   |              | 235,599 |              |   |              | 177,860 |              |   |            | 474,120 |  |   |               | 286,099 |   |   |  |  |  |   |            | 1,228,590 | 
|                                                            
|                                                             |                                    |   | 539,303      |         |              |   | 557,877      |         |              |   | 1,139,242  |         |  |   | 784,000       |         |   |   |  |  |  |   | 3,128,828  |          
|                                                            
|Loss before other item                                       |                                    |   | (525,310     | )       |              |   | (557,877     | )       |              |   | (1,118,921 | )       |  |   | (784,000      | )       |   |   |  |  |  |   | (3,108,507 | )        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Other item                                                   |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest income                    |   |              | 422     |              |   |              | 18,199  |              |   |            | 2,405   |  |   |               | 22,315  |   |   |  |  |  |   |            | 42,322    | 
|                                                            
|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Loss for the period                                          |                                    | $ | (524,888     | )       |              | $ | (539,678     | )       |              | $ | (1,116,516 | )       |  | $ | (761,685      | )       |   |   |  |  |  | $ | (3,066,185 | )        
|                                                            
|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Basic and diluted loss per share                             |                                    | $ | (0.03        | )       |              | $ | (0.04        | )       |              | $ | (0.07      | )       |  | $ | (0.07         | )       |   | $ |  |  |  |   |            |          
|                                                            
|                                                             |                                    |   |              |         |              |   |              |         |              |   |            |         |  |   |               |         |   |   |  |  |  |   |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Shares used in basic and diluted
loss per share calculations |                                    |   | 16,426,000   |         |              |   | 13,815,000   |         |              |   | 15,420,500 |         |  |   | 11,284,973    |         |   |   |  |  |  |   |            |          
|                                                            

See Notes to the Consolidated Financial Statements

3



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company) 
Consolidated
Statement of Cash Flows
(Expressed in United States Dollars)
(Unaudited)

|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |            |         |  
|---------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------- | -------- | ------------- | ------- | ------------- | --------- | ---------------- | ------- | - | ---------- | ---------- | ------- | -
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            | Cumulative
|                                                     |                                            |                                                      |          | Six Month     |         | Six Month     |           | From July 21,   
|                                                     |                                            |                                                      |          | Period Ended  |         | Period Ended  |           | 1999 to June 30,
|                                                     |                                            |                                                      |          | June 30, 2001 |         | June 30, 2000 |           | 2001            
|                                                    
|Cash flows from operating activities                 |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loss for the period                        |                                                      | $        | (1,116,516    | )       |               | $         | (761,685         | )       |   | $          | (3,066,185 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Items not affecting cash:                  |                                                      |          |               |         |               |           |                  |         |   |            |            |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Amortization                                         |          |               | 33,328  |               |           |                  | 18,046  |   |            |            | 75,105  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Stock based compensation expense                     |          |               | 102,200 |               |           |                  | 103,850 |   |            |            | 208,494 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Changes in non-cash working capital items  |                                                      |          |               |         |               |           |                  |         |   |            |            |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Increase in accounts receivable                      |          |               | (7,515  | )             |           |                  | (22,756 | ) |            |            | (19,421 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Increase in prepaid expenses                         |          |               | 90      |               |           |                  | (8,893  | ) |            |            | (7,718  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Increase due to related parties                      |          |               |        |               |           |                  | (23,116 | ) |            |            |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            | Increase in accounts payable and accrued liabilities |          |               | 218,273 |               |           |                  | (17,323 | ) |            |            | 282,722 |  
|                                                    
|                                                     |                                            |                                                      | (770,140 | )             |         |               | (677,231  | )                |         |   | (2,527,003 | )         
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from investing activities                 |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisition of capital assets              |                                                      |          |              |         |               |           | (204,228         | )       |   |            | (281,625   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash acquired on acquisition of subsidiary |                                                      |          |              |         |               |           | 2,257,500        |         |   |            | 2,257,500  |        
|                                                    
|                                                     |                                            |                                                      |         |               |         |               | 2,053,272 |                  |         |   | 1,975,875  |           
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from financing activities                 |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of common stock     |                                                      |          | 60,329        |         |               |           |                 |         |   |            | 360,330    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Due to related parties                     |                                                      |          |              |         |               |           | (150,000         | )       |   |            | (173,116   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Advance (repayment) of promissory note     |                                                      |          | 455,000       |         |               |           | (214,093         | )       |   |            | 455,000    |        
|                                                    
|                                                     |                                            |                                                      | 515,329  |               |         |               | (364,093  | )                |         |   | 642,214    |           
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Increase in cash and cash equivalents for the period |                                            |                                                      | (254,811 | )             |         |               | 1,011,948 |                  |         |   | 91,086     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                            |                                                      | 345,897  |               |         |               | 6,520     |                  |         |   |           |           
|                                                    
|                                                     |                                            |                                                      |          |               |         |               |           |                  |         |   |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, end of period             |                                            | $                                                    | 91,086   |               |         |               | 1,018,468 |                  |         | $ | 91,086     |           
|                                                    

Supplemental disclosure with respect to cash flows(note 11)

See Notes to the Consolidated Financial Statements

4



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##### Table of Contents






MINDFULEYE, INC.
(formerly Rabatco, Inc.)
(A Development Stage Company)
Consolidated Statement of Shareholders Equity
(Expressed in United States Dollars)
(Unaudited)

|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |            |  
|-------------------------- | --------------------------------------------------------------------- |  | ---------- | --------- | ------ | - | ------- | ----- | ----- | - | ------------ | --------- | ----------- | - | ------------- | ---------- | ----- | - | -------- | ---------- | -
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   | Deficit       |            |       |   |         
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   | Accumulated   |            | Total
|                           |                                                                       |  |            |           |        |   |         |       |       |   | Additional   |           | During the  |   | Shareholders'
|                           |                                                                       |  |            |           |        |   |         |       |       |   | Paid-In      |           | Development |   | Equity       
|                           |                                                                       |  | Shares     |           | Amount |   | Capital |       | Stage |   | (Deficiency)
|                          
|Balance, July 21, 1999     |                                                                       |  |           |           |        | $ |        |       |       | $ |             |           |             | $ |              |            |       | $ |         |           
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Common stock issued                                                   |  |            | 160       |        |   |         | 1     |       |   |              |          |             |   |               |           |       |   |          | 1          |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Loss for the period                                                   |  |            |          |        |   |         |      |       |   |              |          |             |   |               | (200,991   | )     |   |          | (200,991   | )
|                          
|Balance, December 31, 1999 |                                                                       |  | 160        |           |        |   | 1       |       |       |   |             |           |             |   | (200,991      | )          |       |   | (200,990 | )         
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Common stock issued                                                   |  |            | 53        |        |   |         |      |       |   |              |          |             |   |               |           |       |   |          |           |  
|                          
|Balance, March 13, 2000    |                                                                       |  | 213        |           |        |   | 1       |       |       |   |             |           |             |   | (200,991      | )          |       |   | (200,990 | )         
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Capital stock of
MindfulEye.com
at March 13, 2000                     |  |            | (213      | )      |   |         | (1    | )     |   |              | 1         |             |   |               |           |       |   |          |           |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Capital stock of
MindfulEye, Inc.
at March 13, 2000                   |  |            | 6,905,000 |        |   |         |      |       |   |              |          |             |   |               |           |       |   |          |           |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Shares issued for equity in
MindfulEye.com at March 31,
2000 (Note 7) |  |            | 6,910,000 |        |   |         | 6,910 |       |   |              | 2,073,974 |             |   |               |           |       |   |          | 2,080,884  |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Adjustment to par value                                               |  |            |          |        |   |         | 6,905 |       |   |              | (6,905    | )           |   |               |           |       |   |          |           |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Common stock issued
November 1, 2000
$0.50 per share                  |  |            | 300,000   |        |   |         | 300   |       |   |              | 149,700   |             |   |               |           |       |   |          | 150,000    |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Common stock issued
November 12, 2000
$0.50 per share                 |  |            | 300,000   |        |   |         | 300   |       |   |              | 149,700   |             |   |               |           |       |   |          | 150,000    |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Stock based
compensation expense                                      |  |            |          |        |   |         |      |       |   |              | 106,294   |             |   |               |           |       |   |          | 106,294    |  
|                          
|                          
|                          
|                          
|                           |                                                                       |  |            |           |        |   |         |       |       |   |              |           |             |   |               |            |       |   |          |           
|                          
|                          
|                          
|                          
|                           | Loss for the year 2000                                                |  |            |          |        |   |         |      |       |   |              |          |             |   |               | (1,748,678 | )     |   |          | (1,748,678 | )
|                          
|Balance, December 31, 2000 |                                                                       |  | 14,415,000 |           |        |   | 14,415  |       |       |   | 2,472,764    |           |             |   | (1,949,669    | )          |       |   | 537,510  |           
|                          

5



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Consolidated Statement of
Shareholders Equity
(Expressed in United
States Dollars)
(Unaudited)

|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |        | 
|-------------------------- | ------------------------------------------------- |  | ---------- | --------- | ------ | - | ------- | ---- | ----- | - | ------------ | ------ | ----------- | - | ------------- | - | ----- | - | ---------- | ------ | 
|                          
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   | Deficit       |   |       |   |           
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   | Accumulated   |   | Total
|                           |                                                   |  |            |           |        |   |         |      |       |   | Additional   |        | During the  |   | Shareholders'
|                           |                                                   |  |            |           |        |   |         |      |       |   | Paid-In      |        | Development |   | Equity       
|                           |                                                   |  | Shares     |           | Amount |   | Capital |      | Stage |   | (Deficiency)
|                          
|Balance,
December 31, 2000 |                                                   |  | 14,415,000 |           |        |   | 14,415  |      |       |   | 2,472,764    |        |             |   | (1,949,669    | ) |       |   | 537,510    |       
|                          
|                          
|                          
|                          
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |       
|                          
|                          
|                          
|                          
|                           | Common stock issued
April 2, 2001
$0.05 per share |  |            | 800,000   |        |   |         | 800  |       |   |              | 39,200 |             |   |               |  |       |   |            | 40,000 | 
|                          
|                          
|                          
|                          
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |       
|                          
|                          
|                          
|                          
|                           | Common stock issued
May 7, 2001
$0.01 per share   |  |            | 2,032,744 |        |   |         | 2033 |       |   |              | 18,296 |             |   |               |  |       |   |            | 20,329 | 
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |       
|                          
|                          
|                          
|                          
|                           |                                                   |  |           |           |        |   |        |      |       |   | 102,200      |        |             |   |              |   |       |   | 102,200    |       
|                          
|                          
|                          
|                          
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |       
|                          
|                          
|                          
|                          
|                           | Expense                                           |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |        | 
|                          
|                          
|                          
|                          
|                           |                                                   |  |            |           |        |   |         |      |       |   |              |        |             |   |               |   |       |   |            |       
|                          
|                          
|                          
|                          
|Loss for the period        |                                                   |  |           |           |        |   |        |      |       |   |             |        |             |   | (1,116,516    | ) |       |   | (1,116,516 | )     
|                          
|Balance, June 30, 2001     |                                                   |  | 17,247,744 |           |        | $ | 17,248  |      |       | $ | 2,632,460    |        |             | $ | (3,066,185    | ) |       | $ | (416,477   | )     
|                          

See Notes to the Consolidated Financial Statements

6



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##### Table of Contents






Notes to Financial Statements



|1. |  | History and Organization of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company was incorporated under the laws of the state of Nevada
on June 16, 1977 under the name Rabatco, Inc. and changed its name to
MindfulEye, Inc. (MindfulEye) on May 12, 2000. The original authorized
share capital consisted of 100,000 common shares with a par value of
$0.25 per share. On June 20, 1998, the authorized share capital was
increased to 100,000,000 common shares with a par value of $0.001 per
share and the Company completed a forward stock split of one share of its
outstanding share capital for five shares. Since its inception, the
Company had primarily been engaged in the development of mining
properties. In 1982, the Company abandoned its remaining assets and
settled its liabilities. The Company remained inactive until March 13,
2000.                                                                                                                                                                                       
|  
|   |  | On March 13, 2000, the Company acquired all of the issued and
outstanding common stock of MindfulEye.com Systems, Inc.
(MindfulEye.com). This transaction was accounted for as a reverse
acquisition recapitalization (see Note 7). The consolidated Company is
considered to have commenced operations on July 21, 1999, the date of
incorporation of MindfulEye.com. The efforts of MindfulEye.com have been
directed towards the development of software for licensing to the
investment community that delivers proprietary content directly to users
by web, desktop, wireless, and e-mail interfaces. In accordance with
Statement of Financial Accounting Standards No. 7 (SFAS 7) Accounting
and Reporting by Development Stage Companies, the Company is deemed to
be in the development stage.                                                                                                                                                                        
|  
|2. |  | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Companys consolidated financial statements are prepared using
U.S. generally accepted accounting principles (GAAP) applicable to a
going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company
has experienced operating losses and negative cash flows from operations
and has relied primarily on debt and equity financing. The Companys
ability to achieve profitability and positive cash flows from operations
will depend upon numerous factors. These factors include its ability to
obtain additional working capital through equity financings and its
ability to significantly increase revenue from the current line of
product of services by means of the current marketing strategy.
Management is in the process of renegotiating the terms of the promissory
note payable while seeking additional debt and equity financing to meet
current obligations and to fund operations.

|                                                 |  |          |            |              |  |   |            |  
|------------------------------------------------ |  | -------- | ---------- | ------------ |  | - | ---------- | -
|                                                 |  | June 30, |            | December 31,
|                                                 |  | 2001     |            | 2000        
|                                                
|Deficit accumulated during the development stage |  | $        | (3,066,185 | )            |  | $ | (1,949,669 | )
|                                                
|Working capital surplus (deficiency)             |  | $        | (622,997   | )            |  | $ | 297,662    |  

7



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)
Notes to Financial Statements



|3. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | These interim financial statements contain the financial statements
of MindfulEye and MindfulEye.com presented on a consolidated basis in
accordance with U.S. GAAP. On March 13, 2000, MindfulEye acquired all
of the issued and outstanding share capital of MindfulEye.com by issuing
6,910,000 common shares. As a result of the share exchange, control of
the combined companies passed to the former shareholders of
MindfulEye.com. Accounting principles applicable to reverse acquisition
recapitalization have been applied to record this transaction (Note 7).
The accounting for this recapitalization is similar to a reverse
take-over in which the financial statements presented include the
accounts of MindfulEye.com since incorporation (July 21, 1999) and the
accounts of the Company since the date of acquisition (March 13, 2000) to
June 30, 2001. The number of shares outstanding at June 30, 2001 as
presented are those of MindfulEye.
|  
|4. |  | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The consolidated financial statements include MindfulEye and
MindfulEye.com. All significant intercompany balances and transactions
have been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses during the period. Actual results could differ
from these estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Cash and cash equivalents include highly liquid investments which
are readily convertible into cash with original maturities of three
months or less. As at June 30, 2001, cash and cash equivalents consist
of cash only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Earnings (loss) per share is provided in accordance with Statement
of Financial Accounting Standards No. 128, (SFAS 128) Earnings Per
Share. Basic earnings (loss) per share is computed by dividing income
available to common shareholders by the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

8



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)
 
Notes to Financial Statements



|4. |  | Significant Accounting Policies(Contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | weighted average number of common shares outstanding in the period.
Diluted earnings per share takes into consideration both the weighted
average number of common shares outstanding and the potentially dilutive
common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss
carryforwards. Deferred tax expenses (benefit) result from the net
change during the year of deferred tax assets and liabilities.                                                                                                                                                                                                                                                                       
|  
|   |  | Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value based method as
described in the Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Accordingly compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Companys stock at the date of the grant over the amount an employee
is required to pay for the stock.
|  
|   |  | The Company accounts for stock-based compensation issued to
non-employees in accordance with the provisions of SFAS 123 and the
Emerging Issues Task Force consensus in Issue No. 96-18 (EITF 96-18),
Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling, Goods or
Services.                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Translation amounts, denominated in foreign currencies, are
translated into United States currency at exchanges rates prevailing at
transactions dates. Carrying values of monetary assets and liabilities
are adjusted at each balance sheet date to reflect the exchange rate at                                                                                                                                                                                                                                                                                                                                                                                                           

9



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)
 
Notes to Financial Statements



|4. |  | Significant Accounting Policies(Contd)                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | that date. Gains and losses from restatement of foreign currency
monetary assets and liabilities are included in income.                                               
|  
|   |  | Capital Assets and Amortization                                                                                                                                        
|  
|   |  | Capital assets are recorded at cost less accumulated amortization.
Amortization is being provided for using the declining balance method at
the following annual rates:

|                        |  |  |     |  
|----------------------- |  |  | --- | -
|Computer software       |  |  | 100 | %
|                       
|                       
|                       
|                       
|Computer hardware       |  |  | 30  | %
|                       
|                       
|                       
|                       
|Furniture and equipment |  |  | 20  | %



| |  | Leasehold improvements are amortized over the period of the lease.
One-half of the above rates are applied in year of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Disclosure About Segments of an Enterprise and Related Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Statement of Financial Accounting Standards No. 131 (SFAS 131), 
Disclosure About Segments of an Enterprise and Related information
requires use of the management approach model for segment reporting. The
management approach model is based on the way a companys management
organizes segments within the company for making operating decisions and
assessing performance. Reporting segments are based on products and
services, geography, legal structure, management structure, or any other
manner in which the management disaggregates a company. Currently, SFAS
131 has no effect on the Companys financial statements as substantially
all of the Companys operations are conducted in one industry segment in
Canada.
|
| |  | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| | a) |  | Fair Value Disclosures                                                                                                                                                                                          
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The carrying value of cash and cash equivalents, trade
receivable and accounts payable and accrued liabilities approximate
their fair values due to the relatively short periods to maturity
of the instruments.
|
| | b) |  | Foreign Currency Risk                                                                                                                                                                                           
|
| |    |  | The Company operates internationally, which gives rise to the
risk that cash flows may be adversely impacted by exchange rate
fluctuations.                                                                     
|
| |    |  | The Company has not entered into contracts for foreign
exchange hedges.                                                                                                                                         

10



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)
 
Notes to Financial Statements



|5. |  | Capital Assets
|-- |  | --------------

|                        |  |      |         |              |  |      |        |      |  |                |         |              |  |   |         | 
|----------------------- |  | ---- | ------- | ------------ |  | ---- | ------ | ---- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                        |  |      |         |              |  |      |        |      |  | Net Book Value
|                        |  |      |         |              |  |      |        |      |  |               
|                        |  |      |         |              |  |      |        |      |  | June 30,       |         | December 31,
|                        |  | Cost |         | Amortization |  | 2001 |        | 2000
|                       
|Computer hardware       |  | $    | 180,646 |              |  | $    | 49,858 |      |  | $              | 130,788 |              |  | $ | 153,868 | 
|                       
|                       
|                       
|                       
|Computer software       |  |      | 10,563  |              |  |      | 8,673  |      |  |                | 1,890   |              |  |   | 3,779   | 
|                       
|                       
|                       
|                       
|Leasehold improvements  |  |      | 9,231   |              |  |      | 2,308  |      |  |                | 6,923   |              |  |   | 7,846   | 
|                       
|                       
|                       
|                       
|Furniture and equipment |  |      | 81,185  |              |  |      | 14,266 |      |  |                | 66,919  |              |  |   | 74,355  | 
|                       
|                        |  | $    | 281,625 |              |  | $    | 75,105 |      |  | $              | 206,520 |              |  | $ | 239,848 | 
|                       



|6. |  | Promissory Note Payable
|-- |  | -----------------------

|                                                                                                                                                                                                                                                                                                                                                                        |  |          |         |              |  |   |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | ------------ |  | - | - | 
|                                                                                                                                                                                                                                                                                                                                                                        |  | June 30, |         | December 31,
|                                                                                                                                                                                                                                                                                                                                                                        |  | 2001     |         | 2000        
|                                                                                                                                                                                                                                                                                                                                                                       
|Promissory Note payable to NetCurrents, Inc.,
bearing interest at 10% per annum on the
principal amount outstanding having a maturity
date of the earlier of i) October 31, 2001,
ii) the closing of the acquisition of the
Company by NetCurrents, Inc. or iii) closing
of any funding in the event the acquisition
does not close. Principal amount advanced to
date. |  | $        | 455,000 |              |  | $ |  | 
|                                                                                                                                                                                                                                                                                                                                                                       



|   |  | On September 7, 2001 and on October 5, 2001, the terms of the
promissory note payable agreement were amended to increase the total
principal advanced to the Company to $490,000 and to change the maturity
date in i) above to the earlier of December 31, 2001.                                                                                                                                                                                                                                                      
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | Acquisition of MindfulEye.com                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | On March 13, 2000, the Company issued 6,910,000 common shares to
acquire 100% of the issued and outstanding shares of MindfulEye.com at a
deemed value of $2,080,884.                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | As a result of this transaction the former shareholders of
MindfulEye.com acquired control over a majority of shares of the Company.
Accounting principles applicable to reverse acquisition recapitalization
have been applied to record this transaction. Under this basis of
accounting, MindfulEye.com has been identified as the acquirer and,
accordingly, the combined Company is considered to be a continuation of
the operations of MindfulEye.com, the legal subsidiary. In accounting
for this transaction:

11



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)
Notes to Financial Statements



|7. |  | Acquisition of MindfulEye.com(Contd)
|-- |  | -------------------------------------



| | i)  |  | MindfulEye.com is deemed to be the purchaser and parent company
for accounting purposes. Accordingly, its net assets are included
in the consolidated balance sheet at their historical book values;                          
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | ii) |  | The deemed acquisition of the Company has been accounted for by
the purchase method with the net assets of the Company recorded at
fair market value at the date of acquisition. The fair market value
acquired is as follows:

|                                         |   |           |           |  
|---------------------------------------- | - | --------- | --------- | -
|Cash and cash equivalents                |   | $         | 2,257,500 |  
|                                        
|                                        
|                                        
|                                        
|Due to related parties                   |   |           | (173,116  | )
|                                        
|                                        
|                                        
|                                        
|Accounts payable and accrued liabilities |   |           | (3,500    | )
|                                        
|                                         | $ | 2,080,884
|                                        



| | iii) |  | Historical cost financial statements presented are those of
MindfulEye.com, with equity amounts of MindfulEye.com restated to
reflect the number of shares received in the business combination.                                                    
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | iv)  |  | The consolidated statements of operations and cash flows include
MindfulEye.coms results of operations and cash flows from July 21,
1999 (date of incorporation) and the Companys results of operations
from March 13, 2000 (date of acquisition).



|8. |  | Capital Stock
|-- |  | -------------



| | a) |  | As a result of the recapitalization described in Note 7,
MindfulEye.com was deemed to be the acquirer for accounting
purposes. However, the number of common shares issued and
outstanding of 6,905,000 are MindfulEyes.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | As consideration to acquire 100% of the outstanding shares of
MindfulEye.com, the Company issued 6,910,000 shares at a deemed
value of $2,080,884.                                                                       
|
| | b) |  | On November 1, 2000, the Company completed a private
placement whereby it issued 300,000 shares for net cash proceeds of
$150,000.                                                                                       
|
| | c) |  | On November 12, 2000, the Company completed a private
placement whereby it issued 300,000 shares for net cash proceeds of
$150,000.                                                                                      
|
| | d) |  | On April 2, 2001, the Company issued 800,000 shares with a
deemed value of $40,000 for professional services rendered to the
Company (Note 11a).                                                                         

12



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|8. |  | Capital Stock(Contd)
|-- |  | ---------------------



| | e) |  | On May 7, 2001, the Company issued 2,032,744 shares with a
deemed value of $20,329 for professional services rendered by a
corporate consultant and officers of the Company who had performed
services in addition to those required by employment contracts (Note
11b).
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Under the Companys stock option plan, incentive and non-qualified
options may be granted to directors, officers, employees and consultants
to acquire up to 3,000,000 authorized but unissued common shares of the
Company. No stock option granted under the stock option plan is
transferable by the optionee other than by will or the laws of descent
and distributions.                                                                                        
|  
|   |  | The exercise price of each option granted to an optionee may not be
less than the market price of the fair market value of the common share
on the date of the grant, and in respect of each stock option granted to
a greater-than ten percent shareholder, the exercise price shall not be
less than 110% of the fair market value of the common share on the date
of the grant.                                                                                   
|  
|   |  | The term of the option granted may not exceed 10 years from the date
of the grant, and in the case of greater-than ten percent shareholders,
the term may not exceed 5 years from the date of the grant. Options
granted under the plan generally vest over a two-year period, with
one-quarter becoming exercisable at the end of every six months following
the date of grant. The plan administrator may accelerate the vesting of
options at its sole discretion.
|  
|   |  | Stock options totalling 1,871,000 were outstanding at June 30, 2001
as follows:                                                                                                                                                                                                                                                                                                                                                                                      

|          |           |          |  |             |  |                    | 
|--------- | --------- | -------- |  | ----------- |  | ------------------ | 
|Number    |           | Exercise |  |            
|Of Shares |           | Price    |  | Expiry Date
|         
|          | 1,287,500 |          |  | $3.50       |  | June 7, 2010      
|         
|         
|         
|         
|          | 95,000    |          |  | 3.50        |  | July 28, 2010     
|         
|         
|         
|         
|          | 6,500     |          |  | 3.50        |  | September 29, 2010
|         
|         
|         
|         
|          | 412,000   |          |  | 0.75        |  | November 24, 2010 
|         
|         
|         
|         
|          | 50,000    |          |  | 0.38        |  | December 22, 2010 
|         
|         
|         
|         
|          | 20,000    |          |  | 0.23        |  | January 8, 2011   
|         

13



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|10. |  | Stock-Based Compensation Expense                              
|--- |  | --------------------------------------------------------------
|   
|    |  | Following is a summary of the Companys stock option activity:

|                                                                 |  |              |           |  
|---------------------------------------------------------------- |  | ------------ | --------- | -
|                                                                 |  | Period Ended
|                                                                 |  | June 30,    
|                                                                 |  | 2001        
|                                                                
|Outstanding, at December 31, 2000                                |  |              | 1,963,750 |  
|                                                                
|                                                                
|                                                                
|                                                                
|Granted                                                          |  |              | 20,000    |  
|                                                                
|                                                                
|                                                                
|                                                                
|Forfeited                                                        |  |              | (112,750  | )
|                                                                
|                                                                
|                                                                
|                                                                
|Exercised                                                        |  |              |          |  
|                                                                
|Outstanding, at June 30, 2001                                    |  |              | 1,871,000 |  
|                                                                
|Weighted average exercise prices                                 |  |              |           |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |  |              |           |  
|                                                                
|                                                                
|                                                                
|                                                                
|Outstanding, at December 31, 2000                                |  | $            | 2.83      |  
|                                                                
|Granted                                                          |  | $            | .23       |  
|                                                                
|Forfeited                                                        |  | $            | 3.25      |  
|                                                                
|Outstanding, at June 30, 2001                                    |  | $            | 2.78      |  
|                                                                
|Weighted average fair value of options granted
during the period |  | $            | 0.23      |  
|                                                                



| |  | Following is a summary of the status of the options outstanding at
June 30, 2001:
| |  | ---------------------------------------------------------------------------------

|               |  |                     |           |                     |  |             |      |          |  |       |      |  |  |          |         |  |  |   |      | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ----------- | ---- | -------- |  | ----- | ---- |  |  | -------- | ------- |  |  | - | ---- | 
|               |  | Outstanding Options |           | Exercisable Options
|               |  |                     |           |                    
|               |  |                     |           |                     |  | Weighted    |      |          |  |       |      |  |  |          |         |  |  |  
|               |  |                     |           |                     |  | Average     |      | Weighted |  |       |      |  |  | Weighted
|               |  |                     |           |                     |  | Remaining   |      | Average  |  |       |      |  |  | Average 
|               |  |                     |           |                     |  | Contractual |      | Exercise |  |       |      |  |  | Exercise
|Exercise Price |  | Number              |           | Life                |  | Price       |      | Number   |  | Price
|              
|$3.50          |  |                     | 1,389,000 |                     |  |             | 8.94 |          |  | $     | 3.50 |  |  |          | 800,250 |  |  | $ | 3.50 | 
|              
|              
|              
|              
|$0.23 to $0.75 |  |                     | 482,000   |                     |  |             | 9.41 |          |  | $     | 0.69 |  |  |          | 201,750 |  |  | $ | 0.73 | 
|              

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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|10. |  | Stock-Based Compensation Expense(Contd)                                             
|--- |  | -------------------------------------------------------------------------------------
|   
|    |  | Compensation                                                                         
|   
|    |  | Of the 1,871,000 total outstanding options as at June 30, 2001 the
following applies:



| | a) |  | The Company has 184,000 options granted to consultants.
These options are accounted for under the Emerging Issues Task Force
Consensus Issue No. 96-18. Accordingly, using the Black-Scholes
option pricing model, the options are marked to fair value through
charges to operations as stock-based compensation. Stock-based
compensation recognized pursuant to EITF 96-18 during the three
months ended June 30, 2001 was $51,775 (June 30, 2000; $103,850).                
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | The Company has 1,687,000 options granted to employees. The
Company applies Accounting Principles Board Opinion No, 25
Accounting for Stock Issued to Employees in accounting for its
stock option plan. Had compensation expense relating to the
remaining 1,687,000 options granted to employees been recognized on
the basis of fair value pursuant to Statement of Financial
Accounting Standard No. 123, net loss and loss per share would have
been adjusted as follows:

|                                             |           |   |             |            |             |   |             |            |   |   |          |          |  
|-------------------------------------------- | --------- | - | ----------- | ---------- | ----------- | - | ----------- | ---------- | - | - | -------- | -------- | -
|                                             |           |   | Period From |            | Period From |   | Period From
|                                             |           |   | July 21,    |            | January 1,  |   | January 1  
|                                             |           |   | 1999 to     |            | 2001 to     |   | 2000 to    
|                                             |           |   | June 30,    |            | June 30,    |   | June 30,   
|                                             |           |   | 2001        |            | 2001        |   | 2000       
|                                            
|Loss for the period
As reported              |           | $ | (3,066,185  | )          |             | $ | (1,116,516  | )          |   | $ | (761,685 | )       
|                                            
|                                             | Pro forma |   | $           | (4,117,254 | )           |   | $           | (1,504,570 | ) |   | $        | (830,714 | )
|                                            
|Basic and diluted loss per share
As reported |           | $ |            |            |             | $ | (0.07       | )          |   | $ | (0.07    | )       
|                                            
|                                             | Pro forma |   | $           |           |             |   | $           | (0.10      | ) |   | $        | (0.07    | )
|                                            



| |  |  | The fair value of each option granted is estimated using the
Black-Scholes Option Pricing Model. The assumptions used in
calculating fair values are as follows:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

15



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|10. |  | Stock-Based Compensation Expense(Contd)
|--- |  | ----------------------------------------

|                             |  |             |         |             |  |  |        |  
|---------------------------- |  | ----------- | ------- | ----------- |  |  | ------ | -
|                             |  | Period from |         | Period from
|                             |  | January 1,  |         | January 1, 
|                             |  | 2001 to     |         | 2000 to    
|                             |  | June 30,    |         | June 30,   
|                             |  | 2001        |         | 2000       
|                            
|Risk free interest rate      |  |             | 6.054   | %           |  |  | 6.616  | %
|                            
|                            
|                            
|                            
|Expected life of the options |  | 9.25 years  |         | 2 years    
|                            
|                            
|                            
|                            
|Expected volatility          |  |             | 169.996 | %           |  |  | 103.93 | %
|                            
|                            
|                            
|                            
|Expected dividend yield      |  |             |        |             |  |  |       |  
|                            



|11. |  | Supplemental Disclosure With Respect to Cash Flows                                           
|--- |  | ---------------------------------------------------------------------------------------------
|   
|    |  | The following non-cash transactions occurred during the six month
period ended June 30, 2001.



| | a) |  | On April 2, 2001, the Company issued 800,000 shares with a
deemed value of $40,000 for professional services rendered to the
Company (Note 8d).                                                                                                                              
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | On May 7, 2001, the Company issued 2,032,744 shares with a
deemed value of $20,329 for professional services rendered by a
corporate consultant and officers of the Company who had performed
services in addition to those required by their employment contracts
(Note 8e).



| |  | During the twelve month period ended December 31, 2000 one non-cash
transaction occurred in which the Company issued 6,910,000 at deemed
value of $2,080,884 to acquire 100% of the outstanding shares of
MindfulEye.com (Note 7).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|12. |  | Related Party Transactions                                                                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company entered into the following transactions with related
parties during the period ended June 30 2001, as follows:



| | a) |  | Paid or accrued $20,329 to directors and officers for
consulting fees (June 30, 2000  $33,409).                                                                  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Included in accounts payables and accrued liabilities is an
amount of $57,655 (June 30, 2000  $Nil) which is payable to
management relating to deferred salaries.



|13. |  | Commitments                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company leases office premises pursuant to an operating lease,
which expires in March 2005. Future annual lease payments are as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 94,169  | 
|    
|    
|    
|    
|2003 |  |   | 99,089  | 
|    
|    
|    
|    
|2004 |  |   | 99,089  | 
|    
|    
|    
|    
|2005 |  |   | 74,317  | 
|    
|     |  | $ | 366,664 | 
|    



|14. |  | Income Taxes                                         
|--- |  | -----------------------------------------------------
|   
|    |  | The Companys total deferred tax asset is as follows:

|                                                |  |          |            |              |  |   |          |  
|----------------------------------------------- |  | -------- | ---------- | ------------ |  | - | -------- | -
|                                                |  | June 30, |            | December 31,
|                                                |  | 2001     |            | 2000        
|                                               
|Tax benefit of net operating loss carry forward |  | $        | 1,042,000  |              |  | $ | 663,000  |  
|                                               
|                                               
|                                               
|                                               
|Valuation allowance                             |  |          | (1,042,000 | )            |  |   | (663,000 | )
|                                               
|                                                |  | $        |           |              |  | $ |         |  
|                                               



| |  | The Company has a net operating loss carry forward of approximately
$3,066,000, which expires in 2007 and 2008 fiscal years. The Company
provides a full valuation allowance on the deferred tax asset because of
the uncertainty regarding realization.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



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##### Table of Contents



MINDFULEYE, INC.
(A development stage company)

Notes to Financial Statements



|15. |  | Subsequent Events
|--- |  | -----------------



| | a) |  | On February 28, 2001, the Company entered into a formal
letter of intent with NetCurrents, Inc. (NetCurrents) whereby
NetCurrents intended to acquire the Company in a stock for stock
transaction. The closing proposed stock offer is subject to
reciprocal due diligence, applicable corporate and regulatory
approvals of the successful negotiation and execution of a
definitive agreement. On July 24, 2001, MindfulEye and NetCurrents
jointly announced the discontinuance of further discussions relating
to the proposed acquisition of MindfulEye by NetCurrents. Both
companies intend to continue to work together to integrate Lexant,
the artificial intelligence technology, into NetCurrents products.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | On September 26, 2001, the Companys Board of Directors
approved the issuance of 678,432 shares for services rendered by a
consultant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



|16. |  | Other Material Events                                                                             
|--- |  | --------------------------------------------------------------------------------------------------
|   
|    |  | Effective April 3, 2001, Mr. Praveen Varshney resigned from the
Board of Directors.               
|   
|    |  | Effective April 20, 2001, Mr. R. Torresan resigned from the Board of
Directors.                   
|   
|    |  | Effective August 10, 2001 Amanda Kerr resigned as director and
corporate secretary of the Company.
|   
|    |  | Effective August 10, 2001, Todd Cusolle was appointed corporate
secretary of the Company.         
|   
|    |  | Effective September 10, 2001, Scott Kerr was appointed a director of
the Company.                 

18



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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

MindfulEye, Inc. (formerly Rabatco, Inc.) (the Company or MindfulEye), was
incorporated under the laws of the State of Nevada on June 16, 1977. From the
Companys inception in 1977 through 1982, the Company was primarily engaged in
the business of mineral resource exploration. The Company remained inactive
from 1982 to 1998. On March 13, 2000, the Company completed the acquisition of
MindfulEye.com Systems, Inc., a company engaged in the business of computing
software and technology research and development. On May 12, 2000, the Company
changed its name to MindfulEye, Inc.

MindfulEye has developed a new category of technologies that can mine raw text
content from digital sources including the Internet and can, through the use of
our proprietary artificial intelligence technology known as Lexant, extract
and deliver important information to various organizations.

MindfulEyes technologies are designed to:



| |  |  | Monitor Internet content such as Internet Relay Chat (IRC)
channels, Web-based discussion forums, editorial Web sites, and other
sources of digital content such as newswire and other electronic data
feeds in near real-time for specific types of information;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Match text information to specific types of concepts such as stock
ticker symbols, organizations, people, or policies;                                                                                                                                           
|
| |  |  | Rank texts for sentiment, classify texts by topic, summarize texts,
and rank texts for linguistic relevance using a branch of Artificial
Intelligence (AI) technology known as Natural Language Processing
(NLP); and                                            
|
| |  |  | Deliver information using a variety of delivery methods including
World Wide Web applications, desktop computer applications, e-mail, and
applications for wireless devices.                                                                                     

Our technologies are built on leading edge software from Microsoft. In 2000,
MindfulEye entered into a strategic partnership with Microsoft that provides us
with special access to Microsoft services and software.

Since March, MindfulEye has been aggressively pursuing opportunities to
co-develop and license private-label applications of our technology with
third parties in a variety of vertical markets. Those markets include the
financial sector, the entertainment industry, the polling and public relations
markets, consumer products marketing, customer relationship management (CRM),
the risk management and credit rating sector, the healthcare market, and the
markets for Internet content management and Internet search services.

19



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##### Table of Contents



The following discussion and analysis explains MindfulEyes results of
operations for the quarter ended June 30, 2001 compared with the quarter ended
June 30, 2000. You should review the discussion and analysis of financial
condition in conjunction with MindfulEyes financial statements and the related
notes, as well as statements detailed in MindfulEyes Securities and Exchange
Commission filings.

RESULTS OF OPERATIONS

FISCAL QUARTER ENDED JUNE 30, 2001 COMPARED TO QUARTER ENDED JUNE 30, 2000

REVENUES. The Company had revenues of $13,993 for the quarter ended June 30,
2001 compared to no revenues for the quarter ended June 30, 2000. MindfulEye
had interest income of $422 for the quarter ended June 30, 2001 compared to
$18,199 for the quarter ended June 30, 2000.

EXPENSES. During the comparative period of the last fiscal year the Company
was not in full operation. Therefore, expenses in total, while numerated
herein absolutely and shown as a percent of the comparative period, are
significantly different from the comparative period last year.
Although expenses decreased overall, the
Company increased its expenses relating to its increase in staffing
requirements by the addition of six full time
employees. Merger costs increased as well.

During the quarter ended June 30, 2001, MindfulEye incurred total expenses of
$539,303 compared to $553,994 for the quarter ended June 30, 2000: related
primarily to: (i) research and development of its web technologies; (ii)
marketing and brand development; (iii) professional and legal fees relating to
its merger activities and its Securities and Exchange Commission reports and
(iv) general overhead and administrative expenses.

During the quarter ended June 30, 2001, MindfulEye paid consulting fees in the
amount of $20,308 compared to $48,373 for the quarter ended June 30, 2000, a
decrease of 138%. This was primarily attributable to our decreased need for
consulting services immediately following the quarter ended June 30, 2000 as
additional full-time staff was hired. MindfulEye paid legal and accounting fees
of $16,871 for the quarter ended June 30, 2001 related to preparation of its
filings with the Securities and Exchange Commission, patent searches and other
corporate and accounting matters compared to $90,466 for the quarter ended June
30, 2000, a decrease of 81.4% attributable in part to a decrease in legal
expenditures in connection with our patent application.

OTHER EXPENSES. MindfulEye incurred other expenses, including amortization
expenses of $16,664 for the quarter ended June 30, 2001 compared to $11,092 for
the quarter ended June 30, 2000, an increase of 50.2% primarily attributable to
the depreciation of certain computer equipment acquired in the third quarter of
2000; foreign exchange loss of $7,719 for the quarter ended June 30, 2001
compared to a foreign exchange loss of $3,883 for the quarter ended June 30,
2000, a 50.3% increase due primarily to an increase in the number of U.S.
dollar transactions in the period; insurance expense of $8,409 for the quarter
ended June 30, 2001 compared to $627 for the quarter ended June 30, 2000, an
increase of 1,241.1% related to the purchase of Directors and Officers
insurance beginning in the fourth quarter of 2000; Interest and

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bank charges expenses of $8,495 for the quarter ended June 30, 2001 compared to
$904 for the quarter ended June 30, 2000, an increase of 840%, due primarily to
the Companys increased liquidity needs; investor relations expenses of $1,824
for the quarter ended June 30, 2001 compared to $328 for the quarter ended June
30, 2000, an increase of 456% related to certain activities undertaken in aid
of securing additional financing; marketing and brand development expenses of
$4,806 compared to $49,375 for the quarter ended June 30, 2000, a decrease of
1027.36% primarily attributable to the transition of our business from
higher-cost subscription sales to lower-cost platform technology sales and
certain other cost containment policies which were instituted during the three
months ended March 31, 2001; infeed services expenses of $15,886 for the
quarter ended June 30, 2001 compared to $16,866 for the quarter ended June 30,
2000, a decrease of 5.8%; office and miscellaneous expenses of $16,061 for the
quarter ended June 30, 2001 compared to $28,661 for the quarter ended June 30,
2000, a decrease of 44% due to certain cost containment policies instituted in
the 3 months ending March 31, 2001; rent and utilities expenses of $23,052
compared to $24,954 ($8,893 of which was prepaid) for the quarter ended June
30, 2000, a decrease of 8.25%; telephone and communication expenses of $5,138
for the quarter ended June 30, 2001 compared to $8,971 for the quarter ended
June 30, 2000, a decrease of 42.7%, primarily attributable to certain cost
containment policies instituted during the 3 months ending March 31, 2001;
wages and salary expenses of $235,599 for the quarter ended June 30, 2001
compared to $177,860 for the quarter ended June 30, 2000, an increase of 32.4%.
Merger expenses were $106,696 for the quarter ended June 30, 2001 and
consisted of legal fees, professional fees, travel and communications costs
relating to the proposed merger, which was announced on February 28, 2001.
There were no merger expenses in the comparable period of 2000. Non-cash stock
based compensation expenses were $51,775 for the quarter ended June 30, 2001
compared to $103,850 for the quarter ended June 30, 2000, a decrease of 50.1%.

NET LOSS. MindfulEye had a net loss of $524,888 or basic and diluted loss of
$0.03 per share for the quarter ended June 30, 2001 compared to a net loss of
$535,795 or basic and diluted loss of $0.04 per share for the quarter ended
June 30, 2000. MindfulEyes net loss represents a decrease in this category of
2%.

PLAN OF OPERATION

Our plan of operation is based on the operating history of MindfulEye, our
experience in the software industry, and our discussions with third parties,
the SEC filings of our competitors and the decisions of our management. Set
out below is a summary of our plan of operation for the twelve-month period
commencing on July 1, 2001.

Subsequent to our fiscal year end of December 31, 2000, we continue to
experience delays in raising additional financing. This has resulted in a
delay in the development of our technologies and our inability to intensify our
marketing and promotional efforts to secure strategic customer relationships.
Our ability to develop new applications of our technology and to continue as a
going concern will depend on our ability to obtain future financing.

We generated sales of $13,993 during the period from our Surveillance service
for the quarter ended June 30, 2001, which has been distributed exclusively by
Canada Newswire in Canada. We anticipate that subscription sales of our
Surveillance service will subside as we transition our

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main sources of revenue away from subscription sales and into licenses of our
technology platform and related technology consulting and development services.
We expect this shift to result in significantly higher revenue growth with
lower marginal costs. We anticipate we will have sales of our technology
platform and related technology consulting and development services in the
third quarter of 2001. We anticipate our operating activities during the next
few months will focus primarily on our efforts to:



| | a. |  | Secure additional financing for general working capital purposes
and for our efforts to begin the initial implementation of our
marketing plan;                                                         
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Generate revenues from licensing our technology, including our
proprietary artificial intelligence technology known as Lexant, and
developing custom, private-label applications of our technologies;
|
| | c. |  | Continue developing and enhancing our artificial intelligence
technology, Lexant; and                                                                                                                   
|
| | d. |  | Hire and train customer support personnel as significant
revenues are generated.                                                                                                                        

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2001, MindfulEye had a working capital deficit in the amount of
$622,997 as compared to a working capital surplus of $297,662 as of December
31, 2000. This was a decrease in working capital of $920,659 or more than
300%. This decrease was primarily attributable to the fact that the Company
was in its infancy in the comparable period of 2000 and had not yet finalized
the development of its products, management organization, or operating
infrastructure, initiatives which generally require large expenditures without
commensurate revenue. The full effects of the Companys operating and related
costs during the period ended June 30, 2000 were thereby not fully realized and
adjustments have not been made for these effects in our discussion of the
Companys results so that comparisons from the period ended June 30, 2000 with
the comparable period of 2001 are not completely meaningful. MindfulEye had
cash or cash equivalents of $91,086, accounts receivables of $19,421 and
prepaid expenses and deposits in the amount of $7,718. MindfulEye had accounts
payable and accrued liabilities in the amount of $286,222 and a short-term
promissory note payable to NetCurrents, Inc. of up to $455,000. This
short-term debt facility from NetCurrents, Inc. is secured by a General
Security Agreement and bears interest at 10% per annum on the principal amount
outstanding. Both the principal and any interest accrued were due and payable
in a single installment the earlier of i) August 21, 2001, ii) the closing of
the acquisition of the Company by NetCurrents, Inc. or iii) closing of any
funding in the event the acquisition does not close. On September 7, 2001 and
on October 5, 2001, the terms of the promissory note payable agreement were
amended to increase the total principal to be advanced to the Company to
$490,000 and to change the maturity date in i) above to the earlier of December
31, 2001.

MindfulEye anticipates that it will be required to raise $2,000,000 to meet its
anticipated cash requirements for planned expansion of the Companys
operations, marketing, and technology development during the ensuing six
months. As of June 30, 2001, MindfulEye did not have arrangements for
financing, but currently is actively working toward finalizing plans for future
financing. There can be no assurance that it will be successful in acquiring
sufficient financing

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to fund its plan of operation on terms acceptable to MindfulEye, if at all.
Any inability to obtain additional financing, as needed, will have a material
adverse effect on the Company, requiring the Company to significantly curtail
or possibly cease its operations. In addition, any additional equity financing
may involve substantial dilution to the interests of the Companys then
existing shareholders.

While MindfulEye believes its capital requirement estimates are reasonable,
such estimates can change for many different reasons, some of which are beyond
MindfulEyes control. MindfulEye is a development stage company, which means
that it is in the process of developing its technologies and that it currently
has very little revenues from its operations. MindfulEye currently has no
significant customers who have licensed its platform technologies and related
services. MindfulEye does not believe it will receive any significant revenue
from its subscription services or from technology platform licensing until at
least the fourth quarter of 2001. There can be no assurance that a sufficient
number of subscribers will subscribe to MindfulEyes services or a sufficient
number of licensees will license our platform technologies and associated
services to make them commercially viable.

MindfulEye does not anticipate acquiring or disposing of any significant
equipment in the fourth quarter of 2001.

PERSONNEL

For the quarter ended June 30, 2001, MindfulEye had 18 full-time employees.
This included three management personnel, eleven programmers and developers who
assisted in the development of the Companys internal operating and information
systems and technologies, and four employees who were engaged in general and
administrative and marketing functions. On June 21, 2001 the Company began a
plan to restructure its operations and management team and to streamline its
staffing requirements to focus on its core customer projects. That plan was
finalized on September 17, 2001 at which time we reduced our management and
staff to six full-time employees and four part-time employees.

MindfulEye also engages independent consultants to assist in the development of
its technologies and applications, for public relations services, services
relating to financing, merger, and acquisition transactions, marketing services
and communication consulting. MindfulEye may also engage additional
consultants in the future to assist it with the development of software and
information systems and implementation of its business plan.

MindfulEyes success will depend in large part on its ability to attract and
retain skilled and experienced employees and consultants. MindfulEye does not
anticipate any of its employees will be covered by a collective bargaining
agreement. MindfulEye does not currently maintain key man life insurance on
any of its directors or executive officers.

INFLATION

MindfulEyes results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on the
Companys operations in the future.

DIVIDENDS

The Company has not paid any dividends on its shares of common stock.

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PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On February 15, 2001 action was commenced and filed in the Supreme Court of
British Columbia against the Company by Capital Idea Financial in the amount of
approximately $20,000 for non-payment of a debt for services rendered pursuant
to an Investor Relations and Marketing Agreement dated September 12, 2000. We
believe the claim is without merit since we terminated the Agreement due to
non-performance and we intend to vigorously defend against it. Accordingly, we
have filed a Statement of Defence. As of June 30, 2001 this action had not
been set for trial.

On July 3, 2001 action was commenced and filed in the Supreme Court of British
Columbia against the Company by Mr. Ray Torresan in the amount of approximately
$30,000 for non-payment of a settlement agreement made in connection with the
termination of his employment on April 20, 2001. We believed that the claim
was without merit since Mr. Torresan had materially breached the terms of that
agreement and so filed a Statement of Defence on May 19, 2001. On October 9,
2001 Mr. Torresan was awarded a summary judgment against us, except that the
court gave us leave to file a counterclaim for damages in connection with what
we had believed to be his material breach of our agreement.




ITEM 2. CHANGES IN SECURITIES

Subsequent to June 30, 2001, the Company has issued, in the aggregate,
3,440,000 fully paid and non-assessable shares of common stock to certain
advisors, consultants and employees as compensation for contractual services
rendered. All such shares were issued in offshore transactions within the
meaning of Rule 902(h) under the Securities Act to persons who are not U.S.
Persons within the meaning of Rule 902(k) under the Securities Act. Following
such issuances, the Company had 20,687,744 shares of common stock issued and
outstanding.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.




ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

On May 31, 2001, the Company held its annual meeting at which shareholders
elected Todd Cusolle, Amanda Kerr and Matthew Sebal to serve as directors for a
period of one year or until such time as his or her successor were elected and
qualified. At the meeting, shareholders also ratified the appointment of Ellis
Foster, Chartered Accountants, as the auditor for MindfulEye, Inc.

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ITEM 5. OTHER INFORMATION

On August 10, 2001, Amanda Kerr resigned her position as a director and
corporate secretary of the Company. On the same date, Mr. Todd Cusolle was
appointed to replace Ms. Kerr as corporate secretary.

On September 10, 2001, Scott Kerr was appointed as a director of the Company.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------

|        |  |                                                                         
|------- |  | ------------------------------------------------------------------------
|2.1 (1) |  | Articles of Incorporation of Mindfuleye, Inc.                           
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|2.2 (1) |  | Certificate of Amendment to Articles of Incorporation                   
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|2.3 (2) |  | Certificate of Amendment to Articles of Incorporation Dated May 12, 2000
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|2.4 (2) |  | Amended and Restated Bylaws, effective May 26, 2000                     
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|6.1 (1) |  | Share Exchange Agreement dated March 13, 2000                           
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|6.2 (1) |  | Lease Agreement dated February 28, 2000                                 
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|6.3 (1) |  | Form of Employment Agreement                                            
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|6.4 (2) |  | 2000 Stock Option Plan                                                  
|       
|       
|       
|       
|        |  |                                                                         
|       
|       
|       
|       
|6.5 (2) |  | Form of Stock Exchange Agreement                                        



---

|(1) |  | Previously filed on April 4, 2000 on Form 10-SB.    
|--- |  | ----------------------------------------------------
|   
|   
|   
|   
|(2) |  | Previously filed on June 2, 2000 on Form 10-SB12G/A.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

On April 24, 2001, the Registrant filed a Current Report on 8-K to
announce that effective April 20, 2001 Ray Torresan had left the Company and
was no longer CEO and President of MindfulEye, Inc. or President of its wholly
owned subsidiary Mindfuleye.com Systems, Inc.

On May 14, 2001, the Registrant filed a Current Report on 8-K to announce
that effective May 2, 2001, Ellis Foster Chartered Accountants had been engaged
by the Company as its independent accountants replacing the firm of Davidson &
Company, Chartered Accountants.

On October 2, 2001, Registrant filed a Current Report on Form 8-K to relate
the following information:



| |  |  | a restructuring of its operations and management team.                                                                                                                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the resignation of Amanda Kerr from the Board of Directors of the Company.                                                                                                                                                                     
|
| |  |  | the appointment of Scott Kerr to the Board of Directors to replace Amanda Kerr.                                                                                                                                                                
|
| |  |  | the appointment of Todd Cusolle as corporate secretary to replace
Amanda Kerr in that position.                                                                                                                                                
|
| |  |  | the failure of the Company to file its Form 10-QSB for the period
ended June 30, 2001 in a timely fashion and the subsequent
ineligibility of its common stock to continue to be quoted using the
NASD Over-the-Counter Bulletin Board service.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

Date: November 1, 2001



| | MINDFULEYE, INC.
| | ----------------



| | /s/ Todd Cusolle
Todd Cusolle, Secretary
| | ----------------------------------------

26